Spurious Regulation: Who Believes in 'No More Bailouts'?

29 Pages Posted: 15 Jul 2019

See all articles by Mark Henning

Mark Henning

FOM University of Applied Sciences - ESSEN, Students

Frank Lehrbass

L*PARC (Lehrbass Predicitive Analytics and Risk Consulting); FOM University of Applied Sciences for Economics and Management; University of the Bundesbank

Date Written: July 9, 2018

Abstract

One of main consequences of the Global Financial Crisis is stricter banking regulation. In fact, the black and white of the regulators' output misleads people to believe that there will be no more bailouts in the future. But history teaches us that this statement should not be taken too seriously. Therefore we may speak of 'spurious regulation'. To judge upon the degree to which implicit guarantees are pre-supposed by the credit and capital markets we investigate empirically whether there is a link between the creditworthiness of a country and the prospects of an investment in a bank's equity. Specifically, we check whether there is a significant impact of sovereign CDS spreads on stock returns using panel econometrics within a CAPM-type context. The findings are model-dependent: Using SUR we find eight cases, whereas using DCC we get only four. Hence, there might be some work to do for the regulators. Hence, using only SUR can be misleading.

Keywords: bailout, bailin, implicit support, banking regulation

JEL Classification: C30, C58, E58, G01, G20

Suggested Citation

Henning, Mark and Lehrbass, Frank, Spurious Regulation: Who Believes in 'No More Bailouts'? (July 9, 2018). Available at SSRN: https://ssrn.com/abstract=3210468 or http://dx.doi.org/10.2139/ssrn.3210468

Mark Henning

FOM University of Applied Sciences - ESSEN, Students

Leimkugelstarsse 6
Essen, 45141
Germany

Frank Lehrbass (Contact Author)

L*PARC (Lehrbass Predicitive Analytics and Risk Consulting) ( email )

Dusseldorf
Germany

HOME PAGE: http://lehrbass.de

FOM University of Applied Sciences for Economics and Management ( email )

Toulouser Allee 53
Dusseldorf, 40476
Germany

University of the Bundesbank ( email )

Schloss
Hachenburg, 57627
Germany

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